How Are The Currency Values Of Two Countries Compared?

There are various means with which the currency of two countries is compared. The most common method is to peg the currency against the US dollar. Whichever currency can buy more of the dollar is the stronger one. But there are many exceptions to this rule. E.g. Currencies of some gulf states look stronger than the US dollar if they are directly compared. But they lack the global acceptability of the US dollar.

Another technique to compare currencies is to check the amount of gold that can be purchased with one unit of the currency. Contemporary economists have come up with modern theories such as the Big Mac Index or Latte Index. The Big Mac Index assumes that McDonalds has operations in both the countries. The Big Mac Index is a measure of the number of units of a currency required to purchase a Big Mac burger in that particular country.

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